The group is setting a new target beyond being the largest private employer in the country to developing interventions aimed at creating shared value in different areas of operation. Currently operating 90 stores across the country, Choppies is seeing a need to add more outlets in towns where it has no representation.
The chain retailer faces fierce competition from Sefalana, which at one point claimed to have bitten a slice off Choppies’ cake in the midst of the latter’s governance setbacks. But the Botswana market is saturated, a state of affairs that is leading to more fierce competition.
Management says this has presented Choppies with an opportunity to embrace and explore innovative technological solutions aimed at attracting customers with high purchasing power. “The recently completed Kazungula Bridge will allow Choppies to explore alternative routes of importing an assortment of goods,” the company wrote in its recently released annual report, noting that Choppies is well-positioned to introduce new and profitable services that cater for specific needs in communities through its wide network of stores across the country.
This initiative, according to the group, will allow for shared-value creation with use of social technologies. The vast network and reach that Choppies has will be used as leverage to achieve this target. “The targeted communities will have access to clean water, operational sanitary services and production of energy from biomass or sunlight,” the group says.
Botswana contributes 78 percent of the Group’s revenue. But management is wary that this presents a challenge in decentralising certain activities and investments from the central office in Gaborone along with improvements that can be achieved by leveraging on other countries’ competitive advantages, such as production of assorted goods of higher quality at a much lower cost. A reduction in the dependency on South Africa as a key supplier as recent restrictions caused by the pandemic and domestic unrest in South Africa proved how badly that vulnerability can affect the Group’s operations.
Zambia
Zambia entered a new phase in its democracy as it embraced a newly elected president. With the new dawn comes a promise to usher in a renewed sense of hope and offer the new ruling party an opportunity to rebuild and restructure the economy, especially for the high numbers of unemployed youth.
This follows economic progress that had stalled in recent times after 15 years of progressive socio-economic growth and achieving middle-income status in 2011. Falling copper prices and an undervalued agricultural sector have negatively influenced economic growth. Annual inflation is expected to rise from 15.7 percent in 2020 to 19.8 percent in 2021, largely attributed to the continued depreciation of the Kwacha against the US Dollar.
RMB economists have observed that the currency continues to steadily weaken into the fourth quarter. The experts, Neville Mandimika and Daniel Kavishe, say the strength of the US Dollar has set a backdrop of weaker currencies. Despite improving foreign reserves in Zambia, they wrote that supply into the market has not offset the broader kwacha weakness. “While liquidity concerns have generally subsided, further central bank intervention will possibly be required…as the currency trades north of 17.00 to the greenback.” The experts expect USD/ZMW to trade between 17.00 and 18.00.
The weaker currency has resulted in expensive imports. Choppies management say imports need to be paid for in foreign currencies while currency volatility and depreciation affects the margin negatively due to increasing rentals, which need to be negotiated in US Dollars. The group observed that customers constantly seek low prices instead of a variety in goods and have proven to be very proud of their local brands. Choppies seeks to increase revenue and footfall enticing the low to middle income population who prefer to buy from informal traders.
“There are some good experiences with differentiated products,” management wrote, adding that the group will create strong bonds and networks with local producers and manufacturers by sourcing from them. Choppies also seeks to reduce real estate costs, achieve higher in-store productivity and improved inventory control and to be able to offer home delivery with poor infrastructure (considering improvements to five to six stores in Zambia). With regard to deficient electricity services, the group says it will develop alternative power sources and plans expansions which will improve the overall performance.
Zimbabwe
In Zimbabwe, the COVID-19 pandemic has severely affected an already ailing economy suffering from high inflation rates. Inflation is expected to average 132 percent in 2021, which was revised down from 162 percent owing to moderation in inflation over the year to May, driven by high-interest rates, tighter control of the monetary base and stabilisation of the exchange rate.
Real GDP growth is forecast to reach 5.5 percent owing to an increase in agricultural output due to a season of favourable rainfall and stable power supply which boosted manufacturing output. Compared to other countries in the region, the economic fallout in the country has been worrying Choppies as more people have been reported to be living under extreme poverty conditions. Real income has plummeted owing to high inflation rates and poor working conditions.
Choppies says high levels of instability within the political and economic sectors have resulted in a shortage in foreign exchange for payment of goods and a reduction in buying power for local workers. Choppies cautions that the situation is expected to improve in the future and the economy will very likely boom as the country has plenty of natural resources (especially minerals such as gold and platinum) around which the economy could be reactivated.
“Even though most of the population has lost its buying power very drastically, there are still groups of consumers who receive salaries in USD and are interested in goods and produce of better quality and higher price,” Choppies says. The group is refitting stores and finding strategic locations that provide easier access for customers with higher purchasing powers.
Over the years, operations in Zimbabwe required Choppies to source goods that were supplied locally due to an exit in foreign suppliers. The group says the experience has presented many valuable lessons and an opportunity to transform local suppliers, the result would be a win-win for both Choppies and the suppliers. The chain retailer says it is exploring partnership opportunities with local suppliers that could be a source of good quality and low price products and can benefit from Choppies’ network to have access to raw material and to a greater market in southern Africa.
Choppies says it remains profitable in a market that has not shown any sign of recovery yet. The group is adapting to changing conditions (e.g. new auction system for FOREX) and wants to be capable of responding with limited access to resources. Management says they are developing new additional money transfer systems for remittances to local customers that have relatives working abroad.
Namibia
Namibia has also seen its growth of the economy heavily impacted by the rapid spread of COVID-19 and trade restrictions implemented, which saw the economy further contract by a negative 8 percent. People are relocating from rural to urban areas with a concentration in the centre and coastal areas (Windhoek and Walvis Bay) and the north along the border with Angola.
Though customers appreciate local brands, they are highly influenced by consumption trends in South Africa. Namibia has import restrictions, mainly in products related to livestock such as dairy and meat. Many competitors are making bold moves towards online trade, as the penetration of the Internet (both fixed and mobile connections) is the highest out of the four countries. Choppies is a member of Team Namibia, a non-profit organisation that advocates for the promotion of quality production of local products and services and encourages consumers to buy local.
Namibia is the only country in the Group with access to the sea. Choppies argues that the increase of Walvis Bay’s port capacity could potentially result in a logistic hub that will be viewed as an advantage for Choppies. As plans to transform Walvis Bay port capacity are ongoing, Choppies will be looking to take advantage in order to decrease dependency on South Africa as the main source for imports, management noted, speaking of strategically positioning Choppies to cater for a broader range of consumers with mini market formats, which are cost-efficient for the store and offer an opportunity to increase its geographical presence. There are plans to increase the stores to reach critical mass.
With the highest share of electricity in stores’ expenses (around 6 percent, compared to 3 percent to 4 percent in other countries) and plenty of sunlight throughout the year, Choppies says this is a market where a solar energy system pilot could achieve an attractive ROI more easily than in other countries.
